In Kiev, things are starting to settle down after the intense drama of the Orange Revolution that ousted the corrupt Kuchma regime and installed the Viktor Yushenko presidency.

What happens in Ukraine will be of profound importance in the years ahead.

It will challenge all of Europe as the country seeks full membership of the structures of European and Atlantic integration, and it will challenge Russia as an open and democratic political system is secured towards its South and as Ukraine provides investment opportunities competing with those of problematic Russia.

That’s why I spent a few days in Kiev taking stock of the situation.

The political attention has rapidly shifted to the March 2006 elections to the Rada – the parliament. In combination with the constitutional changes that will bring more powers to the Rada and the Prime Minister, these will decide the political course of Ukraine in the years ahead.

The government under Prime Minister Yuliya Tymochenko has presented a budget which obviously has the elections in mind. The genereous pre-election promises of the previous regime of increases in pensions and wages are not only honoured, but also increased upon. The result is that there is a serious risk of a deterioation in the fiscal situation and an increase in inflation in the years ahead.

But much of the political debate is consumed by the issue of what to do with the Kuchma cronies that got control of large parts of the Ukrainian economy, not least in the country’s resource-rich and more Russian-oriented Eastern areas.

Yuliya Tumochenko leaves no doubt that she is determined to get these men down to size during the years to come, although she listens to warnings that uncertainty on property rights might well scare of the needed Western investors. At the end of the day, we are likely to see a limited number of the most horrendous cases acted upon by the Courts, but not very much more.

In the meantime, Russian investors afraid of the old patterns of behaviour in the Kremlin are rushing into Ukraine, where Ukrainian oligarchs afraid of the new powers in Kiev are only too keen to sell parts of their assets. The Orange Revolution is immediately resulting in a marked increase in the Russian economic presence in the country.

But there is nothing wrong in this. And over time Western investments are likely to start increasing. If economic reforms are pursued with the vigour that is now talked about, the country gradually moves towards the European Union and there is a reasonable political stability, Ukraine is likely to be one of the premier production locations in Europe in the decAdes ahead.

While Foreign Minister Tarasyk speaks about the country’s ambitions for NATO membership, Deputy Prime Minister Rybachuck is eloquent on their plans to move step by step towards membership of the European Union. While public support for the former is distinctly limited at the moment, the European Union is seen as a guarantee of both freedom and prosperity in the years ahead.

Nothing of this will come either easy or fast. The European Union will be in a rather nervous state until the issues surrounding the Constitutional Treaty have been sorted out. And the accession negotiations with Turkey, scheduled to start October 3rd, are not making things much easier.

But in the middle of this, it is important that the European Union in the one way or the other during this year acknowledges the European aspirations of Ukraine.

Nothing of this can be seen or discussed without taking in the wider context. It is likely that we will see Kiev emerging as a center of democracy in the region, from which inspiration will radiate not the least to Belarus and Moldova.

And it is unavoidable that the political and economic example set in the Ukraine will have a profound effect on developments in Russia in the years ahead.

The war went comparatively easy and victory was swipt. But for the world’s premier power to defeat a third-class army of a third-class regime wasn’t really that sensational.

To win the peace after the war has proved to be a far more difficult challenge, as we are all painfully aware of. To say that policy planning and execution has been smooth would be a blatant lie.

In many ways, it has been a mess. Those of us that have some experience of post-war state-building operations were not surprised by the magnitude of the challenge, but by the naivity with which it was approached.

Nevertheless, there has been progress. The formal occupation has ended. A reasonable election has been held. A government is in the process of being formed. Optimism seems to have increased in Iraq during the last month.

I belong to those that were more understanding of the action two years ago than most.

One of the reasons for that was that I found the possible alternative policy – Saddam in power in his palaces, with the people of Iraq sinking deeper and deeper into despair under the combination of external sanctions and internal repression – substantially worse. It would have lead to some sort of explosion sooner or later anyhow.

Much has been said of the truly massive intellience failure concerning weapons of mass destruction. Rarely has so prestigious institutions been so humiliated as the key Western intelligence organisations on this issue. It will take time for them to recover.

But if no weapons of mass destruction were found, a regime of mass repression certainly was. And its removal was a good thing for Iraq, for the region and for the world.

Now the obligation is to stay the course, defeat the insurgents and terrorist and create the conditions for the Iraqis themselves to build a decent and representative regime.

In the meantime, the link above will make it possible for you to view how the US Department of Defense wants to present the situation in Iraq two years after the start of the war.

The nomination of Paul Wolfowitz – presently US Deputy Secretary of Defense – to be the new head of the World Bank has not been met with universal acclaim.

That’s understandable. The public image of him across the world is the image of a man driving the invasion of Iraq and belligerent US rhetoric in other cases as well.

Invading other countries is not seen as a core business for the World Bank, and his qualifications are accordingly questioned.

But I’m convinced that Paul will be an excellent head of the World Bank. He is far more of an open-minded intellectual than most people are aware of, has dealt extensively with issues of development not the least in Southeast Asia, and would bring both new political gravitas and renewed intellectual strengths to the World Bank.

That he is deeply committed to the values of freedom and democracy, and the transformation of authoritarian and ossified regimes in that direction, can hardly be seen as anything but a plus.

A few days in Washington are a few days in a rather confusing debate on where China is heading and how we should react to its ambitions.

The debate has been triggered by the intention of the European Union to abolish the arms embargo imposed on China after the Tiananmen massacres in 1989.

The embargo is today primarily political in nature. Some military and dual-use equipment continuous to be sold in limited quantities by European countries and the intention is to replace it with a control regime that ensures that nothing substantially more will be done.

The modernization of the Chinese armed forces today is – in terms of imports – done with a combination of advanced Russian platforms – fighters, submarines, surface combatants – and advanced Israeli electronics, although some of the most sophisticated sales have been blocked by the US.

But there is, in spite of this, great disquiet in Washington over the European intentions. It is seen as a bad signal to Beijing at a time when the Communist regime there is adopting a more belligerent rhetoric against Taiwan. And on the horizon there is the fear that at some point in time the United States might find itself in a military confrontation with a rising China.

At worst, Europeans are portrayed in this debate as irresponsible merchant types. At best, they are seen as naïve and ignorant of strategic realities in a part of the world distant from their immediate interests. There are kernels of truth in both these descriptions.

But it is difficult to avoid the conclusion that much of the US debate on the subject is driven by an interpretation of China with little foundation in either history or present. There is simply very little reason to expect that China is intending to develop into an aggressive military power seeking the domination of areas well beyond its present borders. The modernization of its armed forces could well be described as long overdue – the mass peasant army of Mao has no relevance in the modern world.

The issue of Taiwan isn’t easy. Both the US and Europe must be firm in supporting the democracy of Taiwan and opposing any armed threats against it, while at the same time recognizing that Taiwan belongs to China. The coming together of Taiwan with the rest of China must be a voluntary, gradual and peaceful process.

For the time being, it’s difficult to see that China is developing military forces that could seriously threaten to invade Taiwan or even cut it off from links with the outside world.

The threat that is there is in the form of hundreds of ballistic missiles stationed opposite Taiwan and with the capability to wreak havoc on the island. But these have been developed and produced with indigenous Chinese capabilities.

It is certainly worth taking note of the new China debate emerging in Washington. It’s potential for causing new friction across the Atlantic should not be neglected, but more important is to use it to initiate a deeper strategic dialogue on the issues connected with the rise of China.

The efforts to set up the new Iraq government continue to run into serious difficuilties.

In itself this is neither surprising nor alarming. There are European countries that routinely use longer time after an election to form a governments than the Iraqis have done so far. And, to put it mildly, the routine isn’t really there.

But more worth noting is the way in which it is Kirkuk and the issues around that are blocking progress.

The Kurds are now demanding that the multi-ethnic city of Kirkuk should be included in their provinces.

The likelihood that the Arabs would agree to that looks very limited. It’s also something that would gravely concern the northern neighbour of Turkey in view of the significant Turkoman minority in Kiurkuk.

On top of that, they are demanding that their share of Iraq’s oil revenue is increased from 17 to 25 %. That’s a large amount of money.

It might well take both more of time and additional drama until these issues are resolved.

With the European Council meeting scheduled to focus on follow-up to the so called Lisbon process of economic reform soon coming up, also Commission President Barroso is getting more active trying to promote a more forward-looking European agenda.

Here you find the speech he delivered earlier today to the distinctly pro-reform Lisbon Council in Brussels.

Whether he will succeed is a more open question. Disputes about changes in the Stability and Growth Pact are contributing to the muddling of the waters. And the draft conclusions from the European Council circulated by Luxembourg, wich holds the rotating six-month Presidency of the European Union at the moment, are not too encouraging.

Well, there were obviously more problems than anticipated in the local elections in Macedonia:

”Whilst the generally orderly conduct of the elections in most places is very welcome, the serious and persistent irregularities in a significant number of municipalities undermine the process as a whole,” said Julian Peel Yates, heading the observer mission for the Organization for Security and Cooperation in Europe (OSCE).

”The behaviour of the persistent offenders must change before the (27 March) second round.”